1. What is a foreign-invested enterprise?

Article 3 of the 2005 Investment Law defines a foreign-invested enterprise as an organization established by a foreign investor to carry out investment activities in Vietnam, or a Vietnamese enterprise in which a foreign investor purchases shares, merges with, or acquires.

However, the Investment Law 2020 does not use the term “foreign-invested enterprise”, but instead uses the term “foreign-invested economic organization”. This reflects the change in the approach and legality of economic organizations established or with the participation of foreign investors in the investment sector in Vietnam.

2. Tax for 100% foreign-owned enterprises

Taxes for 100% foreign-owned enterprises are an important part of the business environment. Understanding taxes and complying with tax regulations is the key to effective financial management and ensuring legal compliance. The following are taxes that 100% foreign-owned enterprises need to pay attention to.

2.1. Business license tax

Business license fee is the fee that businesses must pay to the management agency when they are established and start operating, before the last day of the month they start. Furthermore, businesses must also pay the annual business license fee before January 30 of the following year.

According to the provisions of Decree 139/2016/ND-CP, amended and supplemented by Decree 22/2020/ND-CP, the business license fee for organizations engaged in production and trading of goods and services is as follows:

• 100% foreign-owned company with charter capital of 10 billion VND or more: 3,000,000 VND/year.
• 100% foreign-owned company with charter capital under 10 billion VND: 2,000,000 VND/year.
• Other economic organizations: 1,000,000 VND/year.

2.2. Value added tax

Value added tax is a tax applied based on the added value of goods and services in the production, circulation and consumption chain.

For 100% foreign-owned enterprises, when red invoices arise, they must pay value added tax according to two methods: deduction or direct, depending on the enterprise's choice from the time of company establishment.

• Deduction method: Tax payable is calculated based on the formula (value of goods or services sold x VAT rate) minus the input VAT paid. The tax rate can be 0%, 5%, or 10%, depending on the applicable subject.
• Direct method: Tax payable is calculated based on a percentage of revenue.

2.3. Personal income tax

A 100% foreign-owned company operating in Vietnam and directly employing workers is responsible for declaring, deducting and paying personal income tax for its employees. This is an integral part of the financial management and legal compliance of this enterprise. Therefore, taxes for a 100% foreign-owned company include not only corporate income tax but also personal income tax for employees.

2.4. Corporate income tax

Foreign corporate income tax in Vietnam applies to income from production, trading of goods, services and other sources of income as prescribed by law. The formula for calculating foreign corporate income tax in Vietnam is:

In addition, other taxes may also be applied depending on the business's operations, including resource tax, special consumption tax, environmental protection tax, and many others.

To ensure fairness for all investors, tax compliance is very important. Enterprises, including 100% foreign-owned enterprises and domestic enterprises, must comply with tax laws. Violations will be administratively handled according to current law.

3. Corporate income tax incentives for 100% foreign-owned enterprises

To enjoy tax incentives, 100% foreign-owned enterprises need to meet specific conditions under the Investment Law 2020. According to regulations, the default corporate income tax is 20%, but there are special cases that enjoy preferential tax rates.

Some conditions for preferential tax treatment include:

• Preferential tax rate of 10% for 15 years for new investment projects in the fields of environmental protection, production, or technology.
• Tax rate of 10% for income from publishing activities, social housing projects, education and healthcare activities.
• Tax rate of 15% for the fields of cultivation, animal husbandry and processing in areas with special economic difficulties.
• Tax rate of 17% for financial institutions such as people's credit funds, cooperative banks and microfinance institutions.

In addition, foreign enterprises may also be exempted or reduced from import tax, corporate income tax, land use fees, land rent, and land use tax depending on the specific conditions of each case.

4. Notes on Tax for 100% foreign-owned enterprises

Tax obligations of 100% foreign-owned enterprises include fully declaring and paying taxes as prescribed by law.

• The tax rate of 20% applies to all foreign projects not eligible for incentives.

Personal income tax is calculated from employees' salaries and wages at different tax rates:

• 20% for non-resident individuals and 10% for residents or according to the progressive scale.